Bernanke Backs Small Banks

WASHINGTON — Federal Reserve Board Chairman Ben Bernanke on Friday reiterated the importance of community banks to the economy and the need to ensure regulatory burdens faced by small banks are minimized.

Testifying before the Senate Budget Committee, Bernanke said the purpose of regulatory reform legislation was to keep a closer eye on large banks, not smaller ones.

"The intent of both Basel III and the Dodd-Frank Act is to focus on the largest, so-called 'too big to fail' banks and to make them not 'too big to fail,' " Bernanke said.

He said it is important community bankers are not overburdened.

"We want to make sure we do all we can not to increase the regulatory burden that small banks face," Bernanke said.

"Small banks have been playing just an incredibly important role, particularly as large banks have cut back on their lending to small business, and in other contexts they have in many cases stepped up and proven their worth to the U.S. economy."

Sen. Debbie Stabenow, D-Mich., echoed other senators' concerns when it came to the health of small businesses and community banks.

"It's critical that the Fed and other regulators help community banks take full advantage of the lending initiatives that we placed in the Small Business Jobs bill, and I wonder what actions the Federal Reserve is doing, and can do, to help small business," Stabenow said.

Bernanke said he will be participating in a panel discussion this week along with Federal Deposit Insurance Corp. Chairman Sheila Bair to discuss small-business credit and the initiatives put forth by Congress and other banking regulators.

"We are very attuned to the need to have an appropriate balance," Bernanke said.

"On one hand, we don't want banks making bad loans, that's how we got in trouble in the first place. But on the other hand, creditworthy borrowers need to have access to credit so that they can retire and they can expand and help the economy recover."

The chairman said the Fed has been working hard to help banks and their examiners take on a more balanced approach, and already has seen progress with standards easing a bit.

"There is some improvement, in my view, in the availability of credit and I expect to see more lending this year," he said.